Inflation explained: what your savings quietly lose

What is inflation, explained simply?

Imagine you buy the same groceries every week: bread, milk, fruit, a few vegetables. Today they cost 100 €. If prices rise by 3 % on average over the year, the very same groceries cost 103 € a year later. Your banknote hasn't changed, but it buys less. That is inflation.

What your money can buy is called purchasing power. Inflation eats purchasing power, and it does so quietly. Your bank statement shows the same amount, which is exactly why it is so easy to overlook.

The opposite, prices falling for a long time, is called deflation. That sounds tempting at first. For an economy it is harmful: if everyone expects the TV to be cheaper next year, everyone waits. Companies sell less, and jobs come under pressure.

How is inflation measured?

Nobody can track the price of everything. So statistics offices put together a basket of hundreds of goods and services that a typical household buys, from bread and butter to rent, electricity, petrol, haircuts and package holidays. Prices are collected every month.

How much an item counts depends on how much households spend on it on average, so rent matters far more than butter. If the price of the whole basket rises by 3 %, inflation is 3 %. The result is called the consumer price index, a number that shows how much more expensive the basket has become compared with a starting year.

Why inflation often feels higher

The news says 3 %, the supermarket feels like a lot more. You are not imagining it. Your sense of prices comes from what you see often, at the checkout and at the pump. The insurance bill that rises once a year leaves less of an impression.

And every household has its own basket. In September 2026, fuel in Germany cost 37.1 % more than a year earlier and heating oil 74.9 % more, while butter was 29.5 % cheaper. Your personal inflation can sit well above or below the average.

Current inflation rates in Germany, Austria and Switzerland

After the record years of 2022 and 2023 inflation calmed down, then picked up again in 2026 because of expensive energy. This is where things stood in early November 2026:

Change compared with the same month a year earlier, as of 8 November 2026. Figures change every month.

The European Central Bank, which looks after the euro, aims for 2 % over the medium term. Switzerland shows that lower rates are possible, but even there inflation never disappears completely. If you live elsewhere, your national statistics office publishes the same kind of figure every month.

What inflation does to your savings

Now it gets personal. Say you have 10,000 € in an account that pays no interest. The amount stays the same, but what it buys shrinks year after year.

Worked example, rounded. Purchasing power in today's money.

At 3 % inflation it happens faster: after 30 years your 10,000 € buy only as much as about 4,120 € today.

A handy shortcut is the rule of 72. Divide 72 by the inflation rate and you get roughly the number of years until purchasing power halves: about 36 years at 2 % (35 if you calculate exactly) and about 24 years at 3 %. The same rule works the other way round for money that grows, as the article on compound interest shows.

Nominal vs. real interest: the one calculation every saver needs

If you remember one thing from this article, make it this. The rate on your statement is the nominal rate. What you can actually buy more of is shown by the real rate, roughly interest minus inflation.

Worked example using Germany's October 2026 rate and assumed interest rates, before tax.

So an interest rate below inflation gives you more euros but less purchasing power. That doesn't make a savings account wrong. For your emergency fund it is exactly right, because there safety matters, not return. It only becomes a problem when far more money sits there than you need for emergencies.

An example: Tobias and his pile of cash

Tobias has 15,000 € in an instant-access savings account. (Tobias is a made-up example.) It feels safe, and that's understandable. His essential spending is 3,000 € a month, so three months of cushion would be 9,000 €.

He compares two paths over ten years, assuming 1 % interest on the account, 2.5 % inflation and 6 % growth a year for a broadly diversified equity ETF. An ETF is a fund that bundles shares in hundreds of companies into one purchase and trades on the stock exchange.

Worked example, before tax and costs, rounded. Equity ETFs fluctuate; 6 % a year is not guaranteed.

On path 1, Tobias has more euros after ten years but can buy about 2,060 € less than today. On path 2 his cushion stays safe, and the money he won't need for a long time has a chance to keep pace with prices. In a bad market year that part can also be well down. How to get started is covered in ETF savings plan for beginners.

How to protect your savings from inflation

You are not defenceless. These five things help most.

1. Cushion yes, cash pile no. Keep in your account what you need for emergencies and short-term goals. The emergency fund calculator shows your number.
2. Watch the real rate. Compare every interest offer with current inflation.
3. Own real assets for the long term. Real assets have value of their own, such as shares in companies. Companies can raise their prices when everything gets more expensive. That helps over many years, not in every single year.
4. Keep an eye on your income. If your pay rises 2 % while prices rise 3 %, you can afford less at the end of the year.
5. Choose loans wisely. For big loans such as a mortgage, a long fixed-rate period protects you from rising interest rates.

Real assets are no magic shield either. In 2022, despite high inflation, both shares and bonds (loans to governments and companies that pay interest) fell sharply. Anyone forced to sell that year had a loss, not protection. Protection against inflation takes many years.

Done in 10 minutes

1. Check what interest you earn on your current and savings accounts.
2. Subtract your country's current inflation rate. That is your real rate.
3. Work out how much of your cash goes beyond your emergency fund.
4. Use the savings plan calculator to see what a monthly amount could grow into over the years.
5. Put a date in your calendar a year from now: has your income risen at least as fast as prices?

Grown for real, or only on paper?

Inflation is not a disaster, it is a calculation you should know. Once you understand it, you stop looking only at your balance and start looking at what the money is really worth.

My book "Depot-IQ" walks you through this step by step, in plain language (about the book). The English edition is in the works, and the depiq app is coming in English too.

This article is not investment advice. All figures are worked examples; past performance is no guarantee of future results. Sources: Destatis, inflation rate October 2026, Destatis, consumer prices September 2026, Statistik Austria, Swiss Federal Statistical Office, consumer prices October 2026.